For most Australians, buying a home involves raising a deposit then borrowing a substantial amount of money from a bank or other lending institution which then holds a mortgage on the property. The amount borrowed is influenced by a number of factors including the price of the property, the amount of deposit, the policy of lenders regarding borrowing limits, and the ability of the borrower to repay the loan (which is in turn influenced by household income and housing loan interest rates).

During the period from 1994-95 to 2008-09 the number of dwellings financed grew considerably. In 2008-09, banks and other lending institutions financed 680,000 dwellings for owner occupation, 55,000 less than in the previous year, but still 50% higher than in 1994-95. While the number of established dwellings financed has grown from 348,000 in 1994-95 to 594,000 in 2008-09, the number of new dwellings financed for construction or purchase has declined from 103,000 to 85,000 over the same period (graph 10.14). In 2008-09, new dwellings represented 12% of all dwellings financed in Australia. Western Australia had the highest proportion of new dwellings financed (16%) and New South Wales had the lowest (9%).

10.14 Dwellings financed(a)

Between 2002-03 and 2008-09 project home prices increased by an average of 32%, while established house prices increased by an average of 45%. Movements in established house prices were more volatile. They increased from 2002-03 to 2003-04, levelled off until 2005-06, again increased until 2007-08, in line with the rise in established home purchases, but declined in 2008-09 (graph 10.15).

Average loan sizes increased along broadly similar lines to house prices between 1994-95 and 2008-09. For most of the period, the average loan size of first home buyers was slightly less than changeover buyers (graph 10.16). However, in 2008-09, first home buyers' average borrowings exceeded that of changeover buyers, with first home buyers borrowing an average of $269,000, $3,000 more than the average loan size of changeover buyers.

10.16 Average loan size

Differences in average loan sizes between states and territories tended to reflect differences in median house prices (table 10.17). Average loan sizes in 2008-09 were highest in New South Wales ($275,000) and Western Australia ($266,000), and lowest in Tasmania ($182,000).

Between 1994-95 and 2007-08, the average real disposable income of households who were lone persons under 35 years increased by 47%. That of couple-only households with a reference person under 35 years increased by 52%, and that of couples with dependent children increased by 64% (graph 10.18). In the same period, the average loan size, after adjustment for inflation, increased by 56%.

About 1.0 million Australian households bought a home in the three years prior to the 2007-08 Survey of Income and Housing conducted during the twelve months ended June 2008. Thirty-two percent of these were first home buyers, most of whom were young households with a reference person aged under 35 years (64%) (table 10.19). Less than 10% of first home buyer households had a reference person aged 45 years and over. In contrast, more than half (53%) of changeover buyer households had a reference person aged 45 years and over.

Changeover buyers are able to use the often substantial equity in their previous dwelling as a deposit on a more expensive 'upgrade'. Many will be able to discharge their mortgage quickly and some may not need to borrow at all. In 2007-08, the estimated median value of dwellings occupied by changeover buyers was $420,000 compared with $350,000 for first home buyers.

While changeover buyers occupied more expensive homes than first home buyers, they had smaller mortgages ($231,000 compared with $251,000) and were more likely to own their home outright.

Consequently, average weekly housing costs of first home buyers were higher than for changeover buyers - $471 compared with $365. First home buyers also spent a larger proportion of household income on housing than changeover buyers - 24% compared with 16%.